Northern District Of California Grants NCAA Athletes Partial Victory In Antitrust Challenge To NCAA Rules
03/19/2019On March 8, 2019, after a bench trial, Judge Claudia Wilkin of the United States District Court for the Northern District of California found that the NCAA’s restrictions on the amount of grants-in-aid and other benefits that universities can provide to student-athletes constitute anticompetitive restraints of trade. In re: National Collegiate Athletic Association Athletic Grant-in-Aid Cap Antitrust Litigation, No. 4:14-md-02541-CW (N.D. Cal. Mar. 8, 2019). Based on this finding, the Court abrogated the NCAA’s limits on “education-related benefits” that its member colleges may provide the student-athletes. However, the Court did not eliminate all restrictions on the benefits that schools may provide to athletes. Instead, using a “less restrictive alternatives” analysis, the Court permitted the NCAA to continue to limit non-education related benefits and compensation, as well as cash payments, to student-athletes.
Plaintiffs, current and former Division I football and basketball players, brought a claim under Section 1 of the Sherman Act, challenging the NCAA’s rules relating to player compensation. The gravamen of plaintiffs’ complaint was that college football and basketball had grown into multi-billion dollar industries but the NCAA rules artificially suppressed competition for the players who made the industries possible. The relevant market, which was not disputed at trial, was “the market for college education combined with athletics, or alternatively, the market for the student-athletes’ services.” Analyzing the claim under the rule of reason, the Court concluded that the NCAA rules indeed had an anticompetitive effect and harmed the student-athletes by depriving them of “the compensation they would receive in the absence of the restraints.” The Court then turned to the NCAA’s proffered pro-competitive justifications in support of its limitations of grants-in-aid to student-athletes. The NCAA argued, among other things, that (1) the amateur status of participants is what drives the demand for college athletics and (2) that the limitations on compensation help maintain an integrated relationship between student athletes and the academic community at large. After a thorough discussion of the evidence offered at trial, the Court largely rejected the proffered justifications, but did credit the argument that it was important to consumer demand to maintain a distinction between college and professional sports. Thus, the Court turned to the issue of whether the NCAA rules, read together, were more restrictive than necessary to maintain that distinction and to plaintiffs’ proposed less restrictive alternatives.
Plaintiffs proposed three alternatives, which can be summarized as (1) no limits on compensation and benefits, (2) no limits on compensation and benefits related to education and no limits on the seventeen specific benefits incidental to athletic participation that the NCAA rules currently allow but cap (except those imposed by the individual conferences), or (3) no limits on benefits and compensation “related to education.” Benefits related to education would include such things as computers, musical instruments, and other equipment, study-abroad programs, and post-eligibility scholarships and internships. The Court rejected plaintiffs’ first proposed alternative because it found that unlimited cash payments could affect the demand for college sports as a product distinct from professional sports and the second because it could allow the conferences to effectively abrogate restrictions on unlimited cash payments. In rejecting these alternatives, the Court made clear, albeit in dicta, that it believed that the NCAA should study or experiment, or allow the conferences to experiment, with some form of modest cash compensation to determine whether such payments could be made without reducing demand.
Turning to the third alternative—eliminating limits on benefits related to education but permitting the limits on non-educational compensation and benefits—the Court found that providing additional benefits related to education, for example, post-graduation scholarships, would not negatively affect consumer demand and would not result in significant increased costs. Allowing additional compensation and benefits related to education, the Court found, “would therefore be less harmful to competition in the relevant market, but would not provide a vehicle for unlimited cash payments, unrelated to education.” Because the NCAA already permits these types of benefits, the Court found this alternative would be “virtually as effective” but far less restrictive than the current rules at maintaining the distinction between professional and collegiate sports and sustaining consumer demand. In sum, then, the Court permitted the NCAA “to limit grant-in-aid at not less than the cost of attendance,” to limit compensation and benefits that are “unrelated to education provided,” and to limit “academic or graduation awards or incentives, provided in cash or cash equivalents.” It indicated that it would issue an injunction embodying these concepts shortly and also that it would stay enforcement of the injunction pending any appeal.
The order in this case will bind only the NCAA; the various collegiate conferences would still have flexibility to impose restrictions that the NCAA cannot under this ruling. As the Court explained, because the major conferences compete with one another, they lack the market power of the NCAA, and will be in a position to explore different arrangements within the confines of the new rules. Another aspect of the opinion with important ramifications for the future is the Court’s conclusion that, notwithstanding the NCAA’s articulated fears, none of the various liberalizing rule changes that took place between the earlier challenges to NCAA student-athlete rules and the trial of this matter had any apparent effect in reducing demand for college sports. Although the Court accepted the NCAA’s legitimate interest in distinguishing college from professional sports, it also suggested that further developments might shed more light on these competitive issues, especially the degree to which various restrictions on compensation were necessary to further this interest, and expressly encouraged further study and experimentation. Although this opinion is an important milestone, it is unlikely that the balance between the interests of the student-athletes and the growing, multi-billion dollar business of college sports has been finally resolved.